The journey from family conversation
to family constitution
Exploring how families can align their goals and objectives through family retreats and constitutions
In our previous article, we emphasised the importance of understanding different family perspectives as part of the wealth planning process.
While it’s natural for elder family members to take the lead in the early stages of wealth planning, we advocated for actively inviting a multitude of viewpoints.
After all, the balance between wealth and relationships is delicate. Families should take care to ensure a seamless transition of wealth, values, and lasting stewardship throughout the generations.
But discussions are just the beginning: how can families move from conversation to meaningful implementation? How can they begin the journey of creating a wealth plan that embodies their legacy – and gives them true peace of mind?
In this article, we’ll aim to answer those questions. And we’ll explore two important components of this journey: family retreats, and family constitutions.
1. A platform for unity
Across the globe, wealth owners are increasingly realising the importance of family retreats. Formal or informal, frequent or infrequent, wealth owners now see retreats as essential family gatherings.
This is for two reasons:
- They offer a platform to review the family’s business and wealth
- And provide a space to nurture and sustain familial relationships
These retreats become even more important as a family grows, businesses transition across the generations, and preserving unity takes greater effort.
Family retreats can evolve from basic meetings into platforms for sustained family dialogue. The retreats help align different generations and family branches around key objectives, such as:
- Developing a unified vision and mission: establishing clear, common aspirations for the family and its wealth, along with consensus on how to mentor the next generation to uphold these aspirations.
- Aligning values, principles, and well-being: ensuring all family members understand and adopt shared beliefs to guide them in both prosperous and challenging times, while actively promoting family cohesion and prioritizing the well-being of all.
- Decisions on stewardship and governance: determining which assets will be kept together for the collective benefit of the family, including the management of a family business, and which can be allocated individually or divided – safeguarding both current and future prosperity for all family members.
- Establishing decision-making and conflict resolution protocols: introducing predefined mechanisms to make decisions and resolve disputes.
Addressing these components can create a robust foundation to go beyond mere wealth and business interests. It serves to strengthen family bonds, fortifying unity and harmony for generations to come.
2. The rules of engagement: balancing inclusivity and realism
3. Pitfalls, problems, and other disengagements
Understanding the need to foster a trusting environment during the wealth planning process, families would be wise to not only assess the current situation, but also delve into past familial patterns concerning wealth and its utilization, such as:
- Are there patterns of disappointment, across all generations within the family? For instance, younger members, despite having modern insights and education, might feel their contributions are overlooked, leading them to pursue opportunities outside the family’s traditional enterprises.
- Is there a history of false hopes, unmet promises, transparency issues, or unequal treatment? Consider a scenario where members of the younger generation are promised active roles in the family business by a certain age, only to discover their roles are merely symbolic. Alternatively, in some families, certain members might be kept informed about all financial decisions, while others with equal stakes remain uninformed, causing friction and feelings of mistrust.
- Will some members approach this process through a veil of scepticism? Prior incidents, from negative public exposures to financial mishaps or unsuccessful ventures, could foster doubt in certain family members. Such members may challenge the authenticity and prospective viability of new family endeavours or plans.
- Has there been an open dialogue about wealth and its use, or have there been misunderstandings and misconceptions? There might be instances where the family’s financial philosophy was unclear. For example, younger generations could mistakenly view the family’s wealth as inexhaustible, leading to extravagant expenditures, while the older generation might be focused on prudent financial stewardship.
Addressing these sensitive questions requires a deep dive into some of the family’s vulnerabilities.
This process warrants careful navigation, preferably under the guidance of moderators with experience, expertise, and empathy. Their conduct should be attuned, embracing perspectives from different generations, and diverse family members.
Such an approach can serve as a powerful catalyst for family dialogue and unity – as we witnessed at a family retreat when a teenage, third-generation son told a large family gathering: “Our family would be different if we used the phrases: ‘I love you’ and ‘I am sorry’ more often.”
While acknowledging the past is essential, the central focus should be solution driven. This prevents wealth planning from becoming focused on historical conflicts or developing an excessively retrospective view. Concentrating on solutions equips families to sidestep traps and unresolved issues, propelling them towards a cohesive family constitution.
This prompts another consideration: if these fundamental issues are overlooked, the resulting constitution might merely echo the optimistic aspirations of the elder generation, instead of representing a genuinely shared and enduring family vision.
4. Setting the scene for success
Let us turn to the practicalities: how should a family host a successful, meaningful retreat?
Ideally, the retreat should be held in a peaceful, tranquil place, away from daily distractions. In our experience it should not, for example, take place in the offices of a family business.
Instead, the family retreat should be framed as a “different” type of meeting: a chance for all members to participate, contribute, and enjoy the process. A different location will also give the retreat the formal, symbolic significance it merits.
Proper preparations are critical. Once the rules of engagement are set and before the retreat begins, it’s invaluable to have individual conversations with various family members. The content of these conversations will remain private if the individual family member so wishes, to maintain the integrity of the process.
This step equips moderators with insights into each person’s unique perspective and relationship dynamics, ensuring that every family member is both actively engaged and genuinely heard. This approach also aids in crafting a collective agenda for the retreat.
Another critical responsibility for moderators is to track the issues raised, delegate tasks to designated members, and maintain the focus during all conversations.
5. Defining common objectives towards the family legacy
A successful inaugural family retreat, where the fundamentals of a family constitution are discussed, should ideally begin by establishing common goals and mapping out the direction for the family’s vision, mission, and legacy.
To find these, we recommend revisiting the questions that are fundamental to the wealth planning process:
- What is the primary purpose of the family’s wealth?
- What is the historical and anticipated impact of this wealth, beyond ensuring material security? How will it impact both the family and its wider society?
- What core values does the family want to pass down to future generations?
- What unites the family – especially during periods of economic diversity or intergenerational discord?
This final question can be a particularly enlightening guide, helping a family to reflect upon and navigate through the tumultuous waters of conflict and crisis.
6. Crafting legacies, not just documents
Today’s wealth owners are aware of family constitutions – but, in our experience, many do not comprehend the true role and utility of them.
Some see a constitution as a mere document – no doubt encouraged by the thriving family constitution industry, which offers wealth owners a variety of off-the-shelf models.
But we believe a genuine family constitution cannot come from a generic template.
It is more than a document: a constitution represents an ongoing process that requires the continuous engagement of both current and future generations. This iterative journey involves continuously asking questions, validating solutions, and implementing actions. It’s vital for the younger generations to remain actively involved, not just at the setup sage, but also as the family’s needs and dynamics evolve over time.
A constitution outlines relationships both within the family and their interactions with the broader community. It sets rules not only between family members, businesses and family assets, but also defines the family’s stance and public profile to the outside world. The constitution clarifies roles and responsibilities, and establishes checks and balances. While it might not typically be legally binding, it works hand-in-hand with formal documents like wills, trusts, and nuptial agreements.
So, then: a family constitution is an incredibly valuable component of any wealth plan, if implemented correctly. But though its creation is an important milestone, it is only the start of a family’s journey towards creating a lasting legacy.
As set out in the Conduct Formula, a strong legacy will consider both wealth and relationships. Achieving and maintaining this delicate balance is challenging, yet a thoughtfully created family constitution can offer substantial assistance in this endeavour.
7. Key questions for creating a family constitution
Once the common goals and directions have been established, a family’s attention should turn to the intricate details of what goes into its constitution.
Of course, every family has unique circumstances. But in our experience, a constitution typically addresses a few crucial questions:
- Who is considered a family member, and how is the family structured?
- How are members nurtured, educated and prepared for their various roles within the family?
- How and by whom are decisions made, and transitioned from one generation to the next, and how are conflicts resolved?
- How is wealth made accessible to family members, and for what purposes? How can the right incentives be established to foster responsible stewardship?
- What assets will be communally managed across generations, and how? Conversely, which assets are designated for division among individual family members?
- What role does the family business play? Is its primary purpose to generate long-term revenue, or to unite the family and cultivate an entrepreneurial spirit?
- If the goal is to cultivate an entrepreneurial legacy, how is the business managed? Additionally, how are distinctions drawn between members engaged in the family business and those who aren’t?
- What is the family’s approach to sustainability, environmental responsibility, and philanthropy?
- How does the family manage its public profile and digital presence? What measures does the family take to ensure members are digitally literate, and aware of online challenges?
- How can the family constitution be amended, under what circumstances, and by whom? Additionally, how is compliance by family members ensured and encouraged?
- How are family values and cultural traditions integrated and preserved within the framework of the constitution?
- How is the well-being and mental health of family members considered and supported, especially in the context of wealth and family business responsibilities?
Exploring these questions can be an invigorating, even emotionally charged exercise. However, after navigating this process, a family can solidify a more defined strategy to safeguard its values, principles, family harmony, and wealth across the generations.
8. Universal truths – but unbiased, tailored solutions
At this stage, it’s important to acknowledge that there are no “correct” answers.
Each family, based on their unique history, culture, generational wealth status, and personal preferences, determines their own path.
They decide on how to organize themselves, set planning goals and horizons, establish areas of unconditional support, define entry criteria for the family business, designate beneficiaries of business and family assets, and more.
But time and again, we encounter “universal truths” related to the same core values – often centred around unconditionally sharing wealth in areas such as upbringing, education, and healthcare.
Additionally, there is often a common theme of mentoring the younger generation, typically by involving them in responsibilities, fostering meaningful relationships, or providing experiential learning in entrepreneurship.
Equally, across cultures and generations, we perceive a shared understanding that maintaining a thriving spirit and promoting responsible stewardship — while steering clear of complacency, entitlement, and mere consumerism — typically stands out as a fundamental element in a successful family legacy.
However, it’s important to acknowledge our own biases as advisors to ensure that we provide balanced, responsible guidance to families. We must help them understand that whatever path they choose, they should be prepared for potential consequences and repercussions.
9. Navigating the way through conflict
The process of wealth planning – including family retreats and constitutions – is seldom straightforward.
The objective is to unite family members across a shared vision and mission – but conflicts and disagreements are inevitable, due to diverse perspectives, emotional histories, varied interests, and the inherently high stakes involved in family governance decisions. In fact, in our opinion, conflicts are essential.
We urge family members, across the generations, to engage in discussion without complacency or naivety. Of course, it’s essential to recognize that varying cultural backgrounds influence how conflicts are approached. Some cultures value hierarchy and respect, which may lead to delicate handling of disagreements with elders or superiors. Others might prioritize saving face and reputation, avoiding open emotional expression to maintain harmony. These intricacies, rooted in cultural and personal nuances, need to be understood, respected, and embraced. Nevertheless, we encourage families not to supress or avoid conflicts. Why? Because the quality or innovation of any group dynamic is its ability to constructively identify, escalate, and navigate conflicts. Therefore, it’s essential to establish protocols for processes, decision-making, and conflict resolution.
One potential source of conflict to highlight as an example is whether family assets should remain consolidated, or whether they can be divided.
Entrepreneurs and wealthy families often aim to maintain family unity by keeping assets consolidated. After all, operating businesses and making joint investments can yield valuable rewards. Additionally, in some cases, dividing legacy assets may not be practically feasible due to restrictions imposed by inheritance laws.
But an important question to ask is: can striving to maintain unity amid persistent discord ultimately do more harm than good? Enabling family members to pursue their own paths may pre-emptively alleviate resentment and potential litigation.
Against this background, it’s vital to establish protocols for dispute resolution. The more thorough this approach, the greater the chance of it being respected. As part of this process, key “constitutional questions” should be addressed:
- What mechanisms exist to make crucial strategic decisions?
- What are the conditions to divide, sell, or distribute legacy assets, including the family business, among successors?
- How are disagreements – especially those related to the business – resolved?
- What are the circumstances where a family member might be excluded from a retreat or even the business – and how might they or their descendants be reintegrated?
- Where does ultimate decision-making authority reside within the family?
- How can the family implement protocols for mediation and arbitration to address disputes, instead of resorting to public courts, ensuring the family’s privacy and safeguarding its reputation and businesses from potential negative exposure?
Exploring and answering these questions is not easy. That’s why we advocate involving facilitators and external advisors during the constitution drafting process – so it serves as a unifying endeavour, rather than a divisive undertaking.
As practical advice, based on our experience, it’s valuable for all generations to try to detach from personal identifications and positions in the planning process to gain a broader perspective. (This doesn’t mean, of course, entirely relinquishing these positions.)
A sense of humour – and the ability to smile at themselves – can be invaluable. Oscar Wilde once remarked: “Life is too important to be taken seriously.” It’s a sentiment we all sometimes struggle to remember, but together with our clients, we explore the benefits of this perspective, fostering a more open, positive environment.
10. Breathing life into a family constitution
No document – not even a family constitution – can guarantee the preservation of family wealth or happiness. At least, not by itself.
The real challenge extends beyond drafting the constitution. It lies in continuously cultivating an environment rich in trust, fostering genuine dialogue, and providing a safe space for constructive discussions that inspire change.
Once the constitution is established, another substantial task emerges: how to effectively implement and sustain its vitality.
This phase is complex, and often overlooked or underestimated, because it demands a shift in behaviour. This, indeed, is a whole other matter.
The Conduct Formula: in practice
It is time to check in on the Robinsons.
Throughout this series, we are using a fictionalised example of a family undertaking the wealth planning process. In doing so, we aim to showcase the transformative potential of the Conduct Formula.
In our previous issue, we left the Robinsons at an important realisation: to address their various tensions, and build a strong wealth plan, they need to organise a family retreat.
Differing family ambitions, and preparing a future alignment
At the head of the family, John and Emma Robinson have a successful multinational business and diversified asset portfolio under their stewardship.
Now, they seek a future where their life’s work prospers across the generations – and reflects their own deeply held values.
John and Emma also have a vibrant family fabric, with three children – Michelle, Daniel, and Sophie – and seven grandchildren. Within this family is a variety of interests and ambitions, intertwined with business and legacy planning.
To navigate these complexities, the Robinsons use the Conduct Formula as their torch, illuminating the dynamics of wealth and relationships with the family.
Each child has a distinct ambition:
- Michelle wants to lead the business
- Daniel wants to balance an academic career with an interest in the family business
- Sophie wants to dedicate herself to a medical career and motherhood, while receiving the same share of assets and income as her siblings
How can the Robinsons tackle these challenges?
With the help of Nancy, the head of their family office, and Ethan, a long-term advisor, they initiate a family retreat.
Nancy’s intimate knowledge of the family’s financial and administrative framework, combined with Ethan’s expertise in steering families through transitions, is crucial.
Before the retreat takes place at the family’s country estate, Nancy and Ethan undertake individual conversations with each family member. This first step acknowledges diverse perspectives, and lays the foundation for a shared understanding and agenda. It underscores the need for a structured, adaptable strategy, capable of balancing individual aspirations and collective progression.
Meaningful dialogues and shared initiatives
As the retreat begins, the Robinsons engage in profound dialogue to address crucial topics, such as:
- Family business stewardship: More than merely an enterprise, the business is a vital carrier for the family legacy. Serving as the core platform that propels the heritage, it stands as a cornerstone of prosperity, embodying family values and upholding these principles in engagements with stakeholders and the wider community. By cultivating a collective entrepreneurial spirit, it’s ensured that every family member, whether directly involved in the business or not, appreciates and advocates for this foundational role.
- “Family bank”: Creating a fund to finance ventures outside of the core business (such as Daniel’s start-up engagements), diversifying risk and promoting entrepreneurship. This also caters to family members not involved in the core family business, ensuring future generations recognize the significance of wealth and are encouraged to lead meaningful, purpose-driven lives.
- Purposeful wealth access: Prioritizing access to family wealth for endeavours such as entrepreneurship and education, rather than personal comforts.
- Healthy family dynamics: Recognizing and addressing the psychological and relationship aspects within the family to foster a unified bond and positive mental health. For example: if historic sibling rivalries or cross-generational conflicts impact business decisions, proactive communication and counselling can bridge differences, ensuring both personal and business harmony.
- Ethical business and investment practises: Prioritizing integrity and transparency in all dealings, while rigorously reviewing business and investment policies. This is anchored around fair access to wealth and financial security, which is deemed foundational and unconditional to ensure a stable, happy life.
- Philanthropy & social impact: Formally integrating the Robinson’s commitment to sustained societal contributions into the family’s legacy.
- Public profile & digital engagement: Prioritizing a consistent and positive digital footprint across media platforms. Leveraging technology and social media to amplify core values and business ventures, while emphasizing digital literacy and prudence. Ensuring online interactions balance transparency with privacy and align with overarching values.
The conversation is engaged, solution-oriented, and directed towards the family’s shared goals and ambitions.
Now let us investigate selected areas in more detail.
Developing the constitution: spotlight on specifics
The retreat spans over a long weekend, bringing together all of John and Emma’s children, their spouses, and all the grandchildren. Even though the grandchildren are still minors, this early immersion fosters family unity and a sense of community.
While this inclusive approach strengthens family bonds, the sessions dedicated to crafting the constitution are exclusively for the descendants of John and Emma.
Fairness in focus: unequal gifting across the siblings
Understanding the significance of achieving consensus on the foundational principles of a wealth plan, a particular focus was on family fairness.
Michelle began this discussion by expressing thanks for her privileged upbringing, but also pointing out palpable disparities between how the siblings had been treated. In particular, she surfaced a long-running source of tension: Daniel’s wedding, which had been considerably more lavish than hers and Sophie’s.
Daniel agreed: his wedding had been more lavish. But he also shared a previously private arrangement: the financial outlay on his wedding would be balanced in future allocations.
Daniel then voiced his disappointment about Emma giving her father’s Swiss wristwatch to Sophie on her wedding day. This watch held sentimental value for him, as he had learned to read time on it with his grandfather during his first summer holiday at the beach.
John and Emma were taken aback by these unforeseen revelations. Their agreement with Daniel, intended to uphold family fairness, had unintentionally sown discord among their children. Additionally, the financially modest (yet seemingly sentimentally rich) gift to Sophie had stirred envy.
Recognising the value in examining historical events to uncover past family patterns and potential pitfalls, John and Emma emphasized the importance of a forward-looking solution. They advocated the need for transparent, equitable guidelines in their constitution for future family financial dealings, without compromising their spirit of generosity.
Perhaps more significantly, they offered an apology for the unintended misunderstandings. This gesture created a heartfelt moment of unity among the siblings, highlighting the value and importance of open dialogue that includes diverse viewpoints.
Family business: the core of prosperity, legacy, and united growth
Throughout the retreat, John and Emma clearly conveyed their vision for the business.
As the creators of the family wealth, they stipulated non-negotiable elements to safeguard the business’ long-term viability – and to prevent its simplification into just a financial asset.
They also:
- Underscored that the younger generation should not have unrestricted ability to liquidate the business – especially not for individual profit, after they have passed away
- And insisted that fundamental guidelines around profit retention and distribution, along with diversification into new business areas and the “family bank”, are integrated into the constitution.
During this conversation, Daniel recognised and valued his parents’ decision to place the business at the core of the family’s ability to foster prosperity. As such, he initiated a conversation around the individual roles family members might play within the business.
He indicated his willingness that Michelle receives additional compensation, should she become CEO in the future – including a share in any growth she fosters. He also suggested that, while he pursued his academic career, he would assume a role on the board and in investment committee meetings.
In contrast, Sophie advocated fervently for equality among the siblings – especially concerning shares and dividends from the family business.
The business, she argued, was an endeavour across multiple generations. If her children wanted to be involved in the future, they should have equal opportunities to enter as shareholders – not merely as employees within the family enterprise.
John suggested the implementation of “arm’s length” principles to preserve the vibrancy and competition of their family business – with rewards based on merit, not familial ties.
It was essential, John emphasized, that Michelle and Daniel build a robust relationship with the current CEO. Such a relationship would ensure his expertise and loyalty remain assets to the family, while also providing mentorship for emerging leaders.
Simultaneously, there was agreement on safeguarding the long-term dedication of the CEO and other important individuals, possibly via phantom stock programs or by bestowing a partner status.
In this context, it was also discussed how the family would prepare for various contingencies – or “what ifs” – such as a political upheavals, significant business downturns, Michelle re-evaluating her CEO aspirations, or the current CEO’s sudden departure.
Nancy then nudged the family to generally view their business through a three-prism lens: ownership, management, and revenue. She illuminated the notion that – across these three areas – distinctive rights and responsibilities could weave seamlessly through family and non-family members. This approach would not only ensure efficient management, but also equitable ownership stakes and revenue distribution, establishing best practices that promote business continuity and fairness.
Meanwhile, Ethan proposed a broader exploration focused on cultivating future leaders and retaining in-house talent. Drawing from past experience, he highlighted the transformative impact of the younger generation in reshaping a family business around sustainability and circular economy principles.
He further suggested the establishment of advisory boards, integrating insights from both older and younger, family and non-family members. These boards would ensure a balanced ecosystem, guiding governance, mentorship, and appointments, and ensuring roles are filled based on expertise and objective criteria.
To further bolster the transition, Ethan recommended educational initiatives tailored to prepare the younger generation for leadership roles. He also recommended a structured feedback mechanism, facilitating open dialogue and fostering understanding between generations.
Towards the end of the retreat, the focus centred around John and Emma’s ambition of sustaining the business for the long-term. Considering the significant size of the business – and the need to avoid splitting share ownership over generations – a shareholders’ agreement was not going to be enough.
Instead, the family landed on the idea of nestling shares into a trust or foundation, weaving in strong checks and balances to protect both family and business interests.
This fiduciary solution extends beyond safeguarding business shares for the long term.
It also upholds the family’s fairness principles, distinguishing between dividend income — equitably accessible to all members (according to the general terms of accessing family wealth) — and the operational earnings of family members actively engaged in the business (like Michelle in a potential CEO role and Daniel on boards and committees).
Moreover, it addresses Sophie’s concerns about equitable share division among siblings and provides that future generations have equal opportunities to join the family business, irrespective of their parents’ active participation in it.
These principles, along with other solutions identified during the family retreat, are integrated into a comprehensive business governance framework. This framework outlines dividend policies, criteria for senior position access, terms of employment and compensation, retirement and pension schemes, exit strategies, and beyond.
The journey continues
The retreat profoundly impacted the Robinson family.
In a welcoming, transparent environment, members voiced concerns, reconciled past misunderstandings, and aligned on shared values and future aspirations.
Of course, this does not mean the family now lives in utopian harmony. Unresolved issues and differing viewpoints persist — but, unlike before, the family collectively acknowledges these dynamics and has laid the groundwork for their enduring constitution. This blueprint not only captures their legacy, but offers guidance for building it through generations.
The retreat also established clear parameters for future implementation and ongoing wealth planning.
In our next article, we will explore how the family uses these foundations to strengthen their shared relationships and spirit.